Randall C. and Leslie A. Whitney v. Commissioner , 2011 T.C. Summary Opinion 106 ( 2011 )

T.C. Summary Opinion 2011-106UNITED STATES TAX COURT
RANDALL C. AND LESLIE A. WHITNEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20393-09S. Filed August 30, 2011.
Randall C. and Leslie A. Whitney, pro sese.
Chong S. Hong, for respondent.
HAINES, Judge: This case was heard pursuant to section 7463
of the Internal Revenue Code in effect when the petition was
filed.1 Pursuant to section 7463(b), the decision to be entered
is not reviewable by any other court, and this opinion shall not
be treated as precedent for any other case.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended for the years at issue, and
Rule references are to the Tax Court Rules of Practice and
Procedure. Amounts are rounded to the nearest dollar.
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Some of the facts have been stipulated and are so found.
The first stipulation of facts and the stipulation of settled
issues, together with the attached exhibits, are incorporated
herein by this reference. At the time petitioners filed their
petition, they resided in California.
Respondent determined deficiencies in petitioners’ Federal
income tax and additions to tax as follows:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2)
2003 $4,100 $923 $2,540
2004 667 --- ---
The sole issue remaining for decision is whether petitioners are
liable for the additions to tax pursuant to section 6651(a)(1)
and (2) for 2003.
Background
Petitioner Randall Whitney (Mr. Whitney) is a limited
partner in the Darrow Family Partnership (DFP). In 2003 DFP had
a disagreement with New York Life Insurance (NYL) regarding the
Federal tax consequences of an annuity held with NYL. DFP’s
position was that it should recognize income from the annuity
only when amounts were “paid out”. NYL issued DFP a Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., requiring DFP to
recognize income from the annuity that had accrued but had not
been distributed. As a result, DFP failed to timely issue Mr.
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Whitney a Schedule K-1, Partner’s Share of Income, Credits,
Deductions, etc., for 2003.
Petitioners filed Form 2688, Application for Additional
Extension of Time To File U.S. Individual Income Tax Return, for
2003, requesting an extension of their filing deadline to October
15, 2004. Respondent received petitioners’ return for 2003 on
April 8, 2005. Petitioners’ return for 2003 shows a tax
liability and wage withholding of $12,876 and $4,688,
respectively.
On July 10, 2009, respondent issued a notice of deficiency
to petitioners. Petitioners timely filed their petition with
this Court on August 26, 2009.
Discussion
I. Burden of Proof
The Commissioner has the burden of production with respect
to any penalty, addition to tax, or additional amount. Sec.
7491(c). The Commissioner satisfies this burden of production by
coming forward with sufficient evidence indicating that it is
appropriate to impose the penalty. See Higbee v. Commissioner,
116 T.C. 438, 446 (2001). Once the Commissioner satisfies this
burden of production, the taxpayer must persuade the Court that
the Commissioner’s determination is in error by supplying
sufficient evidence of an applicable exception. Id.-4-
II. Section 6651(a)(1) and (2) Additions to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed unless the taxpayer can
establish that the failure is due to reasonable cause and not due
to willful neglect. The parties do not dispute that petitioners
failed to timely file a Federal income tax return for 2003.
Accordingly, respondent has satisfied his burden of production
under section 7491(c).
Section 6651(a)(2) imposes an addition to tax for failure
to pay the amount shown as tax on the taxpayer’s return on or
before the date prescribed unless the taxpayer can establish that
the failure is due to reasonable cause and not due to willful
neglect.2 Sufficient payments are made if the tax liability
shown on the return less the amount of tax paid by the statutory
due date is no greater than 10 percent of the amount of the tax
liability shown on the return. Sec. 301.6651-1(c)(3)(i), Proced.
& Admin. Regs.
Petitioners’ return for 2003 shows a tax liability of
$12,876. Respondent submitted Form 4340, Certification of
Assessments, Payments, and Other Specified Matters, certifying
that petitioners’ 2003 wage withholding was $4,688, far below the
2
The amount of the addition to tax under sec. 6651(a)(2)
reduces the amount of the addition to tax under sec. 6651(a)(1)
for any month to which an addition to tax applies under both
paragraphs. Sec. 6651(c)(1).
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regulation’s requirement. Petitioners’ return for 2003 indicates
that they made additional payments towards their 2003 tax
liability. However, the Form 4340 does not reflect any
additional payments, respondent has no other records of these
payments, and petitioners have failed to present any proof that
such payments were made. Thus, respondent has produced
sufficient evidence that petitioners are liable for the section
6651(a)(2) addition to tax for 2003 unless an exception applies.
See Higbee v. Commissioner, supra at 446.
III. Reasonable Cause
Reasonable cause is a defense to the section 6651(a)(1) and
(2) additions to tax. To prove reasonable cause for a failure to
timely file, petitioners must show that they exercised ordinary
business care and prudence and were nevertheless unable to file
the return within the prescribed time. See Crocker v.
Commissioner, 92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1),
Proced. & Admin. Regs. To prove reasonable cause for a failure
to pay the amount shown as tax on a return, petitioners must show
that they exercised ordinary business care and prudence in
providing for payment of their tax liability and nevertheless
either were unable to pay the tax or would suffer undue hardship
if they paid the tax on the due date. See sec. 301.6651-1(c)(1),
Proced. & Admin. Regs. The determination of whether reasonable
cause exists is based on all the facts and circumstances. Estate
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of Hartsell v. Commissioner, T.C. Memo. 2004-211; Merriam v.
Commissioner, T.C. Memo. 1995-432, affd. without published
opinion 107 F.3d 877 (9th Cir. 1997).
Petitioners concede that they failed to file their return
for 2003 in time but argue that they had reasonable cause because
the dispute with NYL caused DFP to fail to provide Mr. Whitney’s
Schedule K-1 in time for them to timely file. Consequently, they
claim they did not have the information needed to timely file
their return for 2003. Petitioners further argue that because
they were unable to file a timely return, they were also unable
to timely pay the tax liability shown on their return.
The unavailability of information or records does not
necessarily establish reasonable cause for failure to file a
timely return. Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324,
1342-1343 (1971), affd. without published opinion 496 F.2d 876(5th Cir. 1974). More specifically, a third party’s failure to
provide a necessary Schedule K-1 is not sufficient to establish
reasonable cause. See Van Ryswyk v. Commissioner, T.C. Memo.
2009-189; Dunne v. Commissioner, T.C. Memo. 2008-63. Petitioners
were required to timely file a return based upon the best
information available and to file thereafter an amended return if
necessary. See Estate of Vriniotis v. Commissioner, 79 T.C. 298,
311 (1982).
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Petitioners have failed to prove reasonable cause for
failing to timely file their return for 2003. Further, they have
not presented any evidence of economic hardship. Accordingly, we
sustain respondent’s determination with respect to the additions
to tax pursuant to section 6651(a)(1) and (2).
In reaching our holdings herein, we have considered all
arguments made, and, to the extent not mentioned above, we
conclude they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.